Duty to Disclose Bad Inspection Items

​The Brokerage Relationships in Real Estate Transactions Act (BRRETA) requires licensed agents in Georgia to provide to buyers material adverse facts or defects pertaining to the physical condition of the property that could not be observed by routine inspection. 
 
Sellers, unless they are licensed agents, are not similarly required under BRETTA.  There is no corresponding statute or legislation governing the conduct of an unlicensed seller.  However, under Georgia case law, a seller does have a duty to disclose defects in the property that the seller knew about or should have known and that a buyer would not have observed upon a reasonably diligent inspection of the property. If a defect is discovered that a seller should have disclosed, the seller can be sued in a civil action for fraud.
 
There are 4 basic elements that must be proved in a case for fraud for non-disclosure. 

1. There is an actual defect. 

Whether an item or a condition is an actual defect can be disputed.  Experts can disagree whether a condition is a defect.  When in doubt, the wisest course is to disclose.

1. The defect could not have been observed by routine inspection.  That is, it was hidden or latent.  For example, it’s hidden if it’s behind sheetrock. But what if the defect could not be observed because access was blocked or a heavy piece of furniture was on it, does that mean it is hidden?  It might. A routine inspection does not anticipate moving heavy furniture or moving items blocking access. A seller could be liable for fraud if the buyer could not see it on a routine inspection.
2. The seller knew or should have known of the defect.

Was there a previous report sent to the seller or the seller’s agent? Did the seller/agent read the report? Were the seller /agent told about the defect, even if they did not receive the report?  Was the report sent to the seller’s agent, but the agent did not open the report?

1. The seller did not disclose the defect to the buyer.

The defect was not on the Seller’s Property Disclosure or otherwise disclosed to the buyer.
 
The GAR Seller’s Property Disclosure Statement includes the question “Have there been any inspections of the Property in the past year?”  If the answer is yes, the seller is not obligated to provide the report, but if there are defects in the report that have not been repaired, smart agents and sellers should disclose.  Most buyers will request the other inspection reports anyway and not enter into a contract without first reviewing them.
 
 
Examples of Situations That Require Disclosure of a Bad Report.

1. The seller/agent didn’t get the report but knows the content reveals hidden defects.  Disclose
2. The agent got the report, but disagrees with the conclusions of the inspector. Because we, as licensed agents, disclaim having special expertise, we must treat inspection reports as truthful and actual. Disclose
3. The agent got the report and thinks it is correct and should be disclosed, but the seller disagrees and instructs the agent not to provide it to prospects or buyers.  BRRETA provides that a seller’s broker is not excused from his duties simply because the seller instructs him to perform in a manner that violates the law. Therefore, the seller’s broker must make a decision independent of the seller. The seller’s broker can either disclose to the buyer or terminate his brokerage engagement with the seller. BRRETA protects the seller’s broker from liability to the seller.
4. The buyer’s agent emailed the report to you, but the seller’s agent didn’t open it and never read it.  You may as well disclose. A jury would not look favorably on a report in your inbox that you chose not to look at. 

 
 
Smart alternatives to dealing with a bad inspection report.

1. Disclose the report to subsequent prospective buyers so that they cannot claim that latent defects were concealed from them. Under Georgia law, while hidden defects do not have to be repaired, they do have to be disclosed.
2. Fix all of the defects listed in the report.
3. If the seller disputes the defects, the seller can hire another inspector and obtain a second report. The seller can then give both reports to a prospective buyer to minimize the negative impact of the first report. Of course, if the 2 reports are consistent, refer back to #1 and #2.

Only Latent or Hidden Defects Need Be Disclosed by the Seller
Georgia law only requires a seller to disclose latent, or hidden, defects. If the defect has been corrected such that it is no longer a defect, the seller arguably has no general duty under common law to disclose the fact that at one time the condition may have been defective. The law does not require sellers to disclose every past repair made to their homes; rather, they must inform potential buyers of current defects of which they are aware.
 
Weissman, Seth. The Red Book on Real Estate Contracts in Georgia (pp. 832-836). BookBaby. Kindle Edition.
Safe Real Estate video with Seth Weissman